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Detroit 'clearly insolvent', says emergency manager | Detroit 'clearly insolvent', says emergency manager |
(34 minutes later) | |
Detroit is "clearly insolvent", the city's emergency manager has said in his first review of Detroit's finances. | Detroit is "clearly insolvent", the city's emergency manager has said in his first review of Detroit's finances. |
Kevyn Orr, who was appointed in March by the state of Michigan to handle Detroit's finances, said the city's net cash position as of 26 April was negative $162m (£106m). | Kevyn Orr, who was appointed in March by the state of Michigan to handle Detroit's finances, said the city's net cash position as of 26 April was negative $162m (£106m). |
Detroit's finances have deteriorated because of the decline in the car industry, mismanagement and corruption. | Detroit's finances have deteriorated because of the decline in the car industry, mismanagement and corruption. |
Mayor of Detroit Dave Bing said his office would review the report. | Mayor of Detroit Dave Bing said his office would review the report. |
Detroit is the largest city in the US under state control. Mr Orr has the power to override its elected officials, rewrite labour contracts, privatise services and sell assets. | Detroit is the largest city in the US under state control. Mr Orr has the power to override its elected officials, rewrite labour contracts, privatise services and sell assets. |
The city has been running a deficit for nearly 10 years, struggling under the weight of its pension and health insurance commitments. | The city has been running a deficit for nearly 10 years, struggling under the weight of its pension and health insurance commitments. |
In March, a former Detroit mayor, Kwame Kilpatrick, was convicted on charges of corruption and bribery. He was found guilty on 24 charges that included racketeering, fraud and collecting kickbacks for city contracts. | In March, a former Detroit mayor, Kwame Kilpatrick, was convicted on charges of corruption and bribery. He was found guilty on 24 charges that included racketeering, fraud and collecting kickbacks for city contracts. |
'Wake-up call' | 'Wake-up call' |
In his report, Mr Orr said Detroit's expenditures had exceeded revenues from 2008 to 2012 by an average of $100m each year. He added that the budget deficit was expected to reach $386m in less than two months. | In his report, Mr Orr said Detroit's expenditures had exceeded revenues from 2008 to 2012 by an average of $100m each year. He added that the budget deficit was expected to reach $386m in less than two months. |
"The City of Detroit continues to incur expenditures in excess of revenues, despite cost reductions and proceeds from long-term debt issuances," he said. | "The City of Detroit continues to incur expenditures in excess of revenues, despite cost reductions and proceeds from long-term debt issuances," he said. |
"In other words, Detroit spends more than it takes in - it is clearly insolvent on a cash flow basis." | "In other words, Detroit spends more than it takes in - it is clearly insolvent on a cash flow basis." |
He went on: "The 45-day report I have submitted is a sobering wake-up call about the dire financial straits the city of Detroit faces. No one should underestimate the severity of the financial crisis." | He went on: "The 45-day report I have submitted is a sobering wake-up call about the dire financial straits the city of Detroit faces. No one should underestimate the severity of the financial crisis." |
He said that years of issuing long-term debt to pay the city's bills could not go on. | He said that years of issuing long-term debt to pay the city's bills could not go on. |
"The path Detroit has followed for more than 40 years is unsustainable and only a complete restructuring of the city's finances and operations will allow Detroit to regain its footing and return to a path of prosperity." | "The path Detroit has followed for more than 40 years is unsustainable and only a complete restructuring of the city's finances and operations will allow Detroit to regain its footing and return to a path of prosperity." |
Restructuring | |
Mr Orr said he would use the report as a baseline for reducing the city's debt and long-term liabilities, saying it had obligations of "at least" $15bn. | Mr Orr said he would use the report as a baseline for reducing the city's debt and long-term liabilities, saying it had obligations of "at least" $15bn. |
He will now begin working on a restructuring package for the city, with the report providing some hints of what may come: | |
Mr Orr has previously said that he hopes to avoid a municipal bankruptcy filing but has not ruled one out if necessary. | |
The report was released late on Sunday and submitted to state Treasurer Andy Dillon and Mayor Bing on Monday. | The report was released late on Sunday and submitted to state Treasurer Andy Dillon and Mayor Bing on Monday. |
In a statement, Mayor Bing said: "A comprehensive review of the emergency manager's financial and operating plan has yet to be conducted. | In a statement, Mayor Bing said: "A comprehensive review of the emergency manager's financial and operating plan has yet to be conducted. |
"However, my initial review is that the assessment by Mr Orr of the city's financial condition is consistent with my administration's findings.'' | "However, my initial review is that the assessment by Mr Orr of the city's financial condition is consistent with my administration's findings.'' |
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